Volatility – it’s a double-edged sword. While we love it when it’s moving in the right direction, it can be hard to take, even disastrous, when it goes the wrong way. This brings me to a lesson I learned early on in my investing career – protecting yourself from the downside is just as important as trying to capture the upside. Low volatility stocks can help with this.
While they’re not a quick and instant path to riches, they are dividend stocks that can provide consistent long-term growth in capital and income without the downside risk.
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Fortis stock: A strong long-term track record with little volatility
I talk about Fortis Inc. (TSX:FTS) a lot. That’s because of this stock’s low volatility, predictability, and dividend history. The price of a volatile stock can change dramatically in either direction, leaving shareholders feeling nervous and tense. The businesses that often underlie these stocks are also volatile and uncertain.
Stocks like Fortis are the exact opposite of this. This is because Fortis’ business is predictable, stable, and steady. It is a utility, after all. And a utility has the benefit of being an essential service, which means that demand does not fluctuate with the economy or with the latest whims. It also means that Fortis’ revenue is regulated, and guaranteed a specific return. These are qualities that support Fortis’ low volatility journey.
Fortis’ dividend history is the result of its steady and predictable business. Fortis has a 49-year history of dividend increases. Also, in the last 28 years, Fortis stock’s dividend has grown at a compound annual growth rate of 6.2%, from $0.42 per share to the current $2.26 per share. It’s almost 440% higher today than it was back in 1995.
CCL Industries: A defensive packaging company that also offers strong growth
Another low volatility stock that I’d like to single out is CCL Industries Inc. (TSX:CCL.B). CCL is a $12-billion label and packaging company that has grown consistently and profitably over the long-term, both organically and via acquisitions. This, in turn, has created shareholder wealth, through both capital appreciation and dividend payments.
In fact, in the last 10 years, CCL has grown from revenue of $1.3 billion in 2012 to $6.4 billion in 2022. This represents a compound annual growth rate (CAGR) of more than 17%. And the corresponding steady increase in cash flow and dividends is just as impressive. For example, CCL’s operating cash flow has grown at a 10-year CAGR of 11.5% to $992 million in 2022.
With a product assortment that isn’t particularly economically sensitive, a global manufacturing network, and a strong balance sheet, CCL is a low volatility stock that’s well positioned to continue to drive shareholder value.
BCE stock: Canada’s leading telecom stock
BCE Inc. (TSX:BCE) is another low volatility stock that has a strong history of predictable and steady returns. Today, BCE is yielding a very generous 6.15% as the telecom giant continues with its network expansions and improvements. As we can see from BCE stock’s price graph below, it has been the picture of stability.
The economy is increasingly under risk from higher interest rates and inflation. But this shouldn’t really phase BCE much, as the company operates in the highly defensive telecom industry. It is this lack of economic sensitivity that has allowed BCE to continue to generate steady and predictable results over the long term. It’s also what has given BCE stock its low volatility profile.
In 2022, BCE reported cash flow from operations of $8.4 billion, 4.5% higher than 2021. And while the first quarter of 2023 was challenging as BCE felt the negative effects of cost pressures and a softer economy, management continues to expect growth in 2023. In fact, they expect that the dividend will be raised another 5.2% this year.
